POVERTY IN INDONESIA

Rural poor in central Java in 1951

Indonesia has made notable progress in reducing poverty, with the national poverty rate falling to a historic low of 8.47 percent—equivalent to about 23.85 million people—by March 2025. Extreme poverty has declined even further, reaching just 0.85 percent, or around 2.38 million people. Despite these gains, a large share of the population remains economically vulnerable, with more than 40 percent classified as financially insecure. Poverty also continues to be more prevalent in rural areas than in urban centers. [Sources: Borgen Project, Badan Pusat Statistik Indonesia]

Recent data highlights steady improvement between 2024 and 2025. The overall poverty rate dropped slightly from 8.57 percent in September 2024 to 8.47 percent in March 2025, while extreme poverty fell sharply from 1.26 percent a year earlier. The national poverty line during this period was about $38 per person per month. However, progress has been uneven across regions. While many areas saw declines in poverty, regions such as Maluku and Papua experienced increases, and Java continues to account for the largest share of the country’s poor population, at more than half of the total.

A significant rural-urban divide persists. Poverty rates in rural areas remain substantially higher, reflecting structural inequalities in access to jobs, services, and infrastructure. Many Indonesians also live just above the poverty line, leaving them highly susceptible to slipping back into poverty during economic downturns or periods of rising living costs.

Several underlying challenges continue to shape poverty in Indonesia. Food security remains a concern, as reflected in the country’s relatively low ranking on the Global Hunger Index. In addition, a large portion of the workforce is employed in the informal sector, where jobs often lack stability, benefits, and social protections. These factors contribute to ongoing economic insecurity even among those who are technically above the poverty threshold.

Government efforts to address poverty have focused heavily on social assistance programs aimed at supporting low-income households. At the same time, long-term strategies emphasize structural reforms such as increasing tax revenues, phasing out inefficient subsidies, and improving infrastructure to promote more inclusive economic growth.

It is also important to consider different ways of measuring poverty. Indonesia’s national standard places the poverty rate at around 8.5 percent based on basic living needs. However, using the World Bank’s upper-middle-income benchmark of $6.85 per day, about 60.3 percent of Indonesians fall below this level. This contrast underscores that while extreme poverty has been largely reduced, a majority of the population still lacks the financial security associated with higher-income economies.

Poverty Reduction in Indonesia

beggar in Bandung in 2021

At the time of independence in 1945, Indonesia was an extremely poor country, with widespread deprivation across much of the population. In the 1960s, roughly two-thirds of Indonesians were living below the poverty line. Industrialization, development and economic growth helped reduce the number of malnourished people from half of the population in 1975 to a third in 1998.

Between 1970 and 1995, when the population of Indonesia doubled, the per capita income leaped from $70 to $730. In the same time the number of people living below the poverty line decreased form 60 percent to below 15 percent. A 1993 World Bank report stated: "The evidence clearly suggests that the poor have been doing well, and far better than in most developing countries."

In the 1970s most villagers ate corn or cassava nearly every meal. By the 1990s they were eating rice three meals a day and often had vegetables, eggs, fish, or meat. In the 1970s many people were lucky to have a bicycle; in the 1990s they had a motorcycle.

Life of the Poorest Poor in Indonesia

The poor in Indonesia can get by but are vulnerable to sudden shocks like an unplanned medical bill. The majority of villager now have electricity instead of kerosene lamps and have access to pumped water. Sometimes the poor in Indonesia have a hard tome coming up with monthly school fees of a few dollars per child and can not afford textbooks.

There are hundreds of thousands of people in Jakarta living in slums. Beds and shacks have been set up by railroad tracks; children sleep on the streets; canals are so choked with garbage you can't see the water; shacks sit beside open sewers. A room under a toll road with electricity goes for a few tens of dollars a month.

This graph shows the great progress that Indonesia has made in reducing poverty; According to the World Bank: “According to the new international extreme poverty line, 5.4 percent of Indonesians were poor in 2024,19.9 percent were poor according to the line typical of lower middle-income countries (LMICs), and 68.3 were poor according to the line typical of upper middle-income countries (UMICs). Indonesia’s steady progress in reducing poverty over the course of four decades, a notable pattern in previous definitions, remains prominent using the latest poverty lines.”

In Jakarta slum dwellers pay 5 to 10 times mire for water than the wealthy. One woman interviewed by Reuters lived with her family and her foster parents in a two story structure with two square meters of floor space. Built on stilts above fowl-smelling polluted water, the house was built of pieces of scrap wood. To afford this the woman's husband sold plastic sandals and she sold hot meals. "I wake up at four in the morning to preparer the food, then sell them the whole day. At 10 in the evening, I will go sleep because I will be too sleepy to do other things."

Some of the poorest residents of Jakarta live in hovels made from scrap wood and plastic sheathing under an elevated highway in an area that was previously a swamp. Describing the area, Alana Sipress wrote in the Washington Post, “A passageway weaves between claustrophobia hovels, some stacked one atop another, upper rooms reached by crooked ladders. In places, the alleys turn to fetid marsh, which is almost impassable...No breeze can penetrate the slum. The air is heavy, warm and rank, redolent with twin odors of kerosene from stoves and sweat from the people standing in the alleys to cook.” A typical meal codists of stir fried eggplant and cabbage. Maybe once a month they eat chicken.

The rural poor call themselves “wong cilik” — the “little people.” What matters to them are thr prices they can get for their crops, the rhythm of the agricultural cycle, whether the rains come or not, and new babies and people who are sick in their village. They are often absorbed in surving day to day and have little interest in the political scene in Jakarta. One villager told Reuters in the early 2000s, “It as easier under Suharto. Before there was corruption but some [assistance] made it down. Now we get none.”

History of Poverty Reduction in Indonesia

Meaningful progress in reducing poverty did not begin until after the political transition in 1965. Over the following decades, particularly in the twenty years leading up to 1996, the country experienced steady economic growth, and the official poverty rate fell dramatically from about 60 percent to 15 percent. Despite this progress, income distribution remained highly unequal: the poorest 20 percent of the population accounted for only about 8 percent of total consumption, while the richest 20 percent consumed around 45 percent. Average annual income during this period was still relatively low, at about $650 per person. [Source: Matthew Easton, Worldmark Encyclopedia of National Economies, Gale Group Inc., 2002]

Poverty has historically been more severe in Indonesia’s outer islands than in its more developed core regions. The growth of manufacturing disproportionately benefited islands such as Java, Bali, and Sumatra, which had stronger infrastructure and better access to markets. In contrast, many outer regions lagged behind, even though they were rich in natural resources. The concentration of economic benefits in Jakarta fueled regional dissatisfaction and contributed to separatist tensions in places like Aceh and Papua. Although decentralization policies were later introduced to shift more political and economic authority to local governments, implementation has faced significant challenges.

The Asian Financial Crisis of 1997 marked a major setback, reversing many of the gains achieved in previous decades. Although Indonesia’s large informal economy and strong family support networks helped cushion the blow, the social and economic consequences were severe. Poverty rose sharply, unemployment surged, and access to education and public services declined. Health and nutrition worsened, and there was an increase in crime, social stress, and fragmentation. While about 15 percent of the population had been living below the poverty line before the crisis, tens of millions more fell into poverty in its aftermath.

Inflation during the late 1990s placed a heavy burden on the poorest households. The price of rice, a staple food, increased dramatically, and food shortages became widespread. At one point, tens of millions of Indonesians struggled to secure enough to eat, with some able to afford only one meal a day. In eastern regions already affected by drought, famine conditions emerged. Rising import costs also led to shortages of essential goods such as medicine, while healthcare demand increased even as government spending was constrained. Maternal mortality rose sharply, reflecting reduced access to medical care and worsening nutritional conditions.

Education was also deeply affected by the crisis. By 1998, schooling accounted for a significant share of household spending, and rising costs combined with falling incomes forced many students to drop out. In 1999 alone, about 5 percent of students left school, with particularly sharp declines among girls and in poorer rural areas. Although the government introduced scholarship programs to support low-income families, these efforts were limited by budget constraints, which led to cuts in funding for higher levels of education.

In the years that followed, poverty rates gradually declined again, returning to around 15 percent in the early 2000s after the spike caused by the crisis. However, a large portion of the population remained economically vulnerable. By 2006, about 45 percent of Indonesians were living on between $1 and $2 per day, with most of the poor residing in rural areas, working in agriculture, and having limited education. Even by the late 2000s, roughly half the population was still living on less than $2 a day, underscoring the persistence of low incomes and economic insecurity despite overall national progress.

Poverty in Indonesia in the 2010s

“Jalanan,” a documentary by Canadian director Daniel Ziv released in 2013, follows the lives of three street musicians who perform for small change on dilapidated buses in Jakarta, Indonesia’s vast and crowded capital. One of them, Boni, survives by living in a sewer beneath one of the city’s most upscale shopping malls. The film offers a stark and moving portrait of inequality, highlighting the striking contrast between wealth and poverty in Southeast Asia’s largest economy. [Source: The Economist, May 3, 2014]

Indonesia has experienced rapid economic growth in recent decades, accompanied by rising living standards. By 2012, gross national income per capita—measured in purchasing-power terms—had doubled over ten years to about $4,730. During the same period, the national poverty rate fell significantly, dropping from 24 percent in 1999 to 12 percent in 2012. Analysts have projected continued expansion of the country’s “consuming class,” defined as those earning more than $3,600 annually, with estimates suggesting it could triple to 135 million people by 2030. This growing consumer base has helped attract increased foreign investment.

Despite these gains, economic growth has been unevenly distributed. Between 2003 and 2010, household consumption rose by an average of about 4 percent annually. However, for the poorest 40 percent of the population, consumption grew by only 1.3 percent per year, while the richest 20 percent saw growth of 5.9 percent. This disparity illustrates how the benefits of growth have disproportionately favored the wealthy. Indonesia’s Gini coefficient, a measure of income inequality, rose from 0.29 in 2000 to 0.38 in 2011, signaling a widening gap between rich and poor.

Urbanization has also reshaped the economy. Each year, more than three million migrants move from rural areas to cities such as Jakarta. Many find work in low-end service jobs, selling food on the streets or peddling goods from carts. These workers form part of a vast informal economy, which accounts for a large share of economic activity. However, they often earn below the minimum wage and lack access to government benefits and social protections.

While moving from agriculture into service-sector jobs can help reduce poverty, productivity in these roles remains relatively low. Although productivity in low-end services is roughly double that of agriculture, it is still far below that of manufacturing. As a result, poverty reduction has been slower than it might have been if more workers had transitioned into factory jobs, where productivity and wages tend to be higher.

Indonesia’s manufacturing sector, however, faces persistent challenges. Poor infrastructure, rigid labor regulations, and protectionist policies have limited its competitiveness. As a result, manufacturing’s share of employment has remained largely stagnant at around 13 percent, even as agricultural employment has declined. Much of the sector is still focused on processing primary commodities such as palm oil. Meanwhile, the service sector has continued to expand, now employing about 44 percent of the workforce, up from 37 percent a decade earlier.

Improving access to basic services—such as quality housing, clean water, sanitation, education, and healthcare—could help distribute the benefits of growth more evenly. The government has increased social spending and has pursued ambitious initiatives, including plans to introduce universal healthcare. However, public spending remains unevenly allocated. A significant portion of the national budget continues to be devoted to energy subsidies, which tend to benefit wealthier households more than poorer ones. Redirecting these funds toward infrastructure, healthcare, and social welfare, alongside tax reforms, could promote more inclusive growth while also benefiting the environment and the broader economy.

Image Sources: Wikimedia Commons

Text Sources:“Encyclopedia of World Cultures Volume 5: East/Southeast Asia:” edited by Paul Hockings, 1993; “Culture and Customs of Indonesia” by Jill Forshee, Greenwood Press, 2006; National Geographic, New York Times, Washington Post, Los Angeles Times, Smithsonian magazine, Encyclopedia.com, Library of Congress, Indonesia Tourism website (indonesia.travel), Indonesia government websites, Live Science, The Conversation, The New Yorker, Time, BBC, CNN, Reuters, Associated Press, AFP, Lonely Planet Guides, Google AI, Wikipedia, The Guardian and various websites, books and other publications.

Last updated April 2026